5 Stocks Setting Up to Break Out - views

DELAFIELD, Wis. (Stockpickr) -- Trading stocks that trigger major breakouts can lead to massive profits. Once a stock trends to a new high, or takes out a prior overhead resistance point, then it's free to find new buyers and momentum players that can ultimately push the stock significantly higher.

One example of a successful breakout trade I flagged recently was development-stage biopharmaceutical player Puma Biotechnology (PBYI), which I featured in June 21's "5 Stocks Poised for Breakouts" at around $40 a share. I mentioned in that piece that shares of PBYI had been uptrending strong for the last six months, with the stock consistently making higher lows and higher highs, which was bullish technical price action. That move was quickly pushing shares of PBYI within range of triggering a major breakout trade if it could take out its all-time high at $40.49 a share with high volume.

Guess what happened? Shares of PBYI didn't wait long to trigger that breakout since the stock cleared its all-time high that same day with decent upside volume. Then on June 28, PBYI exploded higher again with monster volume of 1.95 million shares vs. its three-month average action of 222,230 shares. This stock hit a new all-time high a few days ago at $57.22 a share, which represents a gain of over 40% from when the stock was trading near $40 a share. Anyone who played this breakout banked some serious coin in just a few weeks as PBYI continued to uptrend strong and print new highs.

Breakout candidates are something that I tweet about on a daily basis. I frequently tweet out high-probability setups, breakout plays and stocks that are acting technically bullish. These are the stocks that often go on to make monster moves to the upside. What's great about breakout trading is that you focus on trend, price and volume. You don't have to concern yourself with anything else. The charts do all the talking.

Trading breakouts is not a new game on Wall Street. This strategy has been mastered by legendary traders such as William O'Neal, Stan Weinstein and Nicolas Darvas. These pros know that once a stock starts to break out above past resistance levels, and hold above those breakout prices, then it can easily trend significantly higher.

One name that's currently trending within range of triggering a major breakout trade is Netflix (NFLX), a provider of Internet subscription service streaming TV shows and movies. This stock has been on fire so far in 2013, with shares up a whopping 163%.

If you take a look at the chart for Netflix, you'll notice that this stock recently formed a double bottom at around $205.75 to $207.56 a share. Following that bottom, shares of NFLX have soared higher trending back above its 50-day moving average and breaking out above some near-term overhead resistance at $235.88 a share. That move has now pushed shares of NFLX within range of triggering an even bigger breakout trade.

Traders should now look for long-biased trades in NFLX if it manages to break out above some near-term overhead resistance levels at $247.41 to its 52-week high at $248.85 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 3.76 million shares. If that breakout triggers soon, then NFLX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $280 to $300 a share. Netflix's all-time high is just about $305, so any high-volume move above that level will give this stock a chance to run toward $350 a share.

Traders can look to buy NFLX off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support at $235 a share or below its 50-day at $222.65 a share. One could also buy NFLX off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Keep in mind that this stock is a favorite target of the bears, since the current short interest as a percentage of the float for NFLX is pretty high at 13.1%. If that breakout triggers soon, then we could see NFLX experience a short-squeeze into earnings date, which is set for July 22 after the market close.

Repros Therapeutics

Another stock that's creeping up on triggering a major breakout trade is Repros Therapeutics (RPRX), development stage biopharmaceutical player focused on the development of oral small molecule drugs for major unmet medical needs in male and female health. This stock is off to a strong start in 2013, with shares up by 24%.

If you take a look at the chart for Repros Therapeutics, you'll notice that this stock has been uptrending strong for the last month and change, with shares moving higher from its low of $15.11 to its recent high of $21.02 a share. During that uptrend, shares of RPRX have been mostly making higher lows and higher highs, which is bullish technical price action. That move has now pushed shares of RPRX within range of triggering a major breakout trade.

Market players should now look for long-biased trades in RPRX if it manages to break out above some near-term resistance levels at $20.08 to its 52-week high at $21.02 a share with high volume. Look for a sustained move or close above those levels with volume that registers near or above its three-month average action of 468,100 shares. If that breakout triggers soon, then RPRX will set up to enter new 52-week-high territory, which is bullish technical price action. Some possible upside targets off that breakout are $25 to $30, or even $35 a share.

Traders can look to buy RPRX off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-day moving average at $17.95 a share, or right below $17 a share. One could also buy RPRX off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

This is another stock that's very popular among the short-sellers, since the current short interest as a percentage of the float for RPRX is extremely high at 19.2%. If RPRX can break out to new all-time highs soon with volume, then the shorts could be in serious trouble as momentum buyers swoop in to buy that bullish technical price action.

Vanda Pharmaceuticals

One name that's quickly moving within range of triggering a near-term breakout trade is Vanda Pharmaceuticals (VNDA), which focuses on the development and commercialization of clinical-stage drug candidates for central nervous system disorders. This stock has been in pure beast mode in 2013, with shares up an impressive 135% so far.

If you look at the chart for Vanda Pharmaceuticals, you'll notice that this stock recently pulled back sharply from its 52-week high of $13.30 to its low of $7.44 a share. That pullback took VNDA right to its 50-day moving average, and so far the stock has held that level and started to reverse its recent downtrend. That reversal has now put VNDA in an uptrend, with the stock making higher lows and higher highs right above its 50-day moving average. Shares of VNDA are now quickly moving within range of triggering a near-term breakout trade.

Market players should now look for long-biased trades in VNDA if it manages to break out above some near-term overhead resistance levels at $8.74 to $10 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 1.04 million shares. If that breakout hits soon, then VNDA will set up to re-test or possibly take out its next major overhead resistance levels at $11 to $12 a share. Any high-volume move above those levels will then give VNDA a chance to re-test its 52-week high at $13.30 a share.

Traders can look to buy VNDA off any weakness to anticipate that breakout and simply use a stop that sits right below its 50-dayat $7.97 a share or below some more key near-term support at $7.44 a share. One can also buy VNDA off strength once it clears those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Echo Therapeutics

Another stock that's starting to push within range of triggering a major breakout trade is Echo Therapeutics (ECTE), a transdermal medical device company. This stock has been destroyed by the bears so far in 2013, with shares off sharply by 76%.

If you look at the chart for Echo Therapeutics, you'll notice that this stock recently dropped sharply from $5.99 to its low of $2.32 a share with heavy downside volume flows. Following that plunge, share of ECTE have started to stabilize and trend sideways between $2.32 on the downside and $2.68 on the upside. That stabilization is occurring after the stock entered oversold territory, since its relative strength index reading recently dipped below 30. Shares of ECTE have now marked a double bottom at $2.32 to $2.39 a share and it's starting to move within range of triggering a major breakout trade.

Traders should now look for long-biased trades in ECTE if it manages to break out above some near-term overhead resistance levels at $2.68 to $3 a share with high volume. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 127,076 shares. If that breakout hits soon, then ECTE will set up to re-test or possibly take out its next major overhead resistance levels at $3.50 to its 50-day moving average of $4.20 a share. Any high-volume move above its 50-day at $4.20 a share will then give ECTE a chance to tag $5 to $5.50 a share.

Traders can look to buy ECTE off any weakness to anticipate that breakout and simply use a stop that sits right below some key near-term support levels at $2.39 to $2.32 a share. One can also buy ECTE off strength once it takes out those breakout levels with volume and then simply use a stop that sits a comfortable percentage from your entry point.

Venaxis

My final breakout trading candidate is Venaxis (APPY), which advances products that address unmet human diagnostic needs. This stock has been hit hard by the bears so far in 2013, with shares down by 48%.

If you look at the chart for Venaxis, you'll notice that this stock has started to consolidate and trend sideways after a major downtrend from February to late May, with the stock now moving between $1.15 on the downside and $1.45 on the upside. Shares of APPY have just started to uptrend over the last few weeks, with shares moving higher from its low of $1.17 to its recent high of $1.41 a share. That move is quickly pushing shares of APPY with range of triggering a major breakout trade above the upper-end of its recent sideways trading chart pattern.

Traders should now look for long-biased trades in APPY if it manages to break out above some near-term overhead resistance levels at $1.41 to $1.45 a share with high volume. That breakout, if triggered, would also push APPY back above its 50-day at $1.44 a share. Look for a sustained move or close above those levels with volume that hits near or above its three-month average action of 749,656 shares. If that breakout triggers soon, then APPY will set up to re-test or possibly take out its next major overhead resistance levels at $1.70 to $1.80 a share. Any high-volume move above those levels will then give APPY a chance to tag its next major overhead resistance levels at $1.94 to its 200-day at $2.08 a share.

Traders can look to buy APPY off any weakness to anticipate that breakout and simply use a stop that sits right below either of its key near-term support levels at $1.20 or $1.15 a share. One could also buy APPY off strength once it clears those breakout levels with volume and then simply use a stop that sits a conformable percentage from your entry point.

At the time of publication, author had no positions in stocks mentioned.

Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.